Reverse Mortgage Myth: THE BANK OWNS MY HOME
This week I’ve had multiple conversations with clients in St George and Cedar City where the borrower asked, “so if I do a Reverse, the bank owns my home, right?” The shortest answer I can give is, NO.
Reverse Mortgages are no different in terms of ownership than a conventional mortgage. When you do ANY mortgage you as the homeowner are listed as the owner on the property’s title, the mortgage company just carries a lien against the property which must eventually be paid off.
These clients I mentioned have picked up the myth out there that to do a Reverse Mortgage you must give your home to the bank and they let you live in the home until death. This is simply not true. Let me explain how a HECM Reverse Mortgage really works.
The best way for me to explain how a Reverse Mortgage works is to compare it with a standard Forward Mortgage. On a Forward Mortgage you borrower money from the bank and immediately begin making monthly payments to repay the loan. Those monthly payments are applied to:
- Your property taxes and hazard insurance
- Mortgage insurance if the loan requires it
- Interest that accrued on the loan’s balance over the previous month
- A small amount of your principal balance
The result is that over 15 to 30 years your mortgage is paid off and you eventually own your home with no liens assuming you don’t refinance in the meantime and start over.
With a Reverse Mortgage the difference is quite simple. A Reverse Mortgage has no required monthly payment but all the same expenses exist and this is how they are handled:
- Typically, the home owner will pay property taxes and insurance on their own
- Mortgage insurance is added to the balance of the loan
- Interest that accrues monthly is also added to the balance of the loan
- The balance of the mortgage is paid off when the home is sold either when the homeowner passes away or decides to sell the home and move out
The result of a Reverse Mortgage is that the homeowner gets to utilize the majority of the equity in their home without ever having to make another mortgage payment. This is possible because a portion of the home’s equity is put into an equity reserve to compensate for the growth of the mortgage balance as the interest accrues.
If a person’s goal is to live with greater financial security in retirement a Reverse Mortgage is likely the right answer for them because it gives them access to their home’s equity without the obligation of a mortgage payment they cannot afford on their fixed income.
If you or someone you love has any questions about a Reverse Mortgage call me today for a no obligation consultation. My office is in St George and I can travel to meet with anyone in Southern Utah for a personal consultation.
President – Reverse Mortgage Specialist
Heritage Reverse Mortgage
Heritage NMLS #1497455 Trevor’s NMLS #: 267962